Europe is tanking today after the European Central Bank’s Mario Draghi quite literally failed to put his money where his mouth is. Last week, Europe cheered when Draghi said in a press conference that the ECB would do “whatever it takes” to save the euro. He also said that the high bond yields in Spain and Italy interfered with his ability to conduct monetary policy. This is a key point, because Draghi and the ECB often hide behind jurisdiction as a way to avoid steps that would help the troubled sovereigns, like direct purchases to depress bond yields. The language Draghi used made it appear that he believed those high yields fell under his jurisdiction.

Just on his statements alone, the bond yields in Spain and Italy dropped significantly. But at some point, Draghi would have to back it up. He had an opportunity today, as the ECB held a policy meeting. But the central bank decided to do nothing. Business Insider reports:

European Central Bank President Mario Draghi failed to announce any definitive measures to address concerns about the burgeoning sovereign debt crisis in his latest post-decision press conference.

The ECB Governing Council also decided to leave interest rates unchanged at 0.75 percent.

Analysts expected Draghi’s speech to be far more exciting, for if he was ready to announce new, non-standard measures from the ECB he would have done it in that press conference [...] While Draghi implied that such measures could be in the works, he instituted an important precondition: EU leaders must address concerns about official sector seniority in sovereign debt holdings (in other words, the implicit guarantee that the public sector will not take losses in the case of a debt restructuring) and they must decide how to use the EFSF/ESM bailout funds to purchase sovereign bonds.

Basically, Draghi threw it back on the EU, and refused to ride to the rescue, again. Meanwhile, Europe is sick, and Draghi still has CONVENTIONAL policy options, as the interest rate is 0.75%, when it could be as low as zero.

So European markets are dropping precipitously and the bond yields have snuck back up, closing in on the crucial 7% line in Spain. Draghi cannot accomplish the securing of the euro with just words alone. At some point he needs to act. If he refuses, the euro won’t be around much longer.

I agree it isn’t only the Germans, but it’s they who are really calling the tune, not the Finns. And they already “own” Greece, which has lost its sovereignty to the Troika. Spain and Italy are not far behind–note Draghi’s comments today that countries will have to ask for any new bond market support, which will come with conditionality. We have yet to see the backlash this will produce–an eventual Syriza government in Greece, but also Berlusconi trying to use the crisis to catapult himself back into power. The implications of all this have not sunk in. Simon Johnson laid out the calamitous impact on U.S. banks this will likely have in his Senate testimony yesterday. He essentially said the big U.S. banks are insolvent and scared the hell out of the politicians.

You had to know Draghi was full of shit bc Angela did not endorse it. That idiot Brit on CNBC said but but the euro is strong or something to that effect. He is also full of shit as most of the prognosticators that surround him.

I think the German view is that at the very least Greece, and probably Italy too, need to exit the euro immediately. I hope they find it in themselves to help Spain stay in, because in spite of everything, Spain is 100 times more honest and positioned to grow in the future than either of the former two.

However, what I don’t understand is why the Germans continue to drag this out so interminably. Why not just get it over with?

The idea that Greece and Italy can be kicked out of the Eurozone and Spain can stay in is a complete fantasy. The whole house of cards will come tumbling down, and the shock will head straight to France then Germany itself. The Germans, or at least some of them, are smart enough to know it, and that’s why they’re “dragging this out.” They would be “getting it over with” their whole financial system.

No, it’s not fantasy. If the choice is clearly made – Italy and Greece are out from the start, but Spain is staying in – and we mean it – then Spain would stay in. This would mean allowing Spain access to a mechanism that the other 2 did not have access to, which would seem unfair, but at this point, the Germans can decide as they wish. Who else has the power to help?